SEC Charges Digital Currency Group and Former Genesis CEO for Misleading Investors

The U.S. Securities and Exchange Commission (SEC) has charged Digital Currency Group (DCG) and former Genesis CEO Soichiro "Michael" Moro with misleading investors about Genesis’ financial condition following the collapse of Three Arrows Capital (3AC).

According to CoinTelegraph on January 18, the SEC imposed civil penalties totaling $38.5 million, with DCG fined $38 million and Moro fined $500,000. Both parties accepted the penalties without admitting or denying the allegations of securities law violations.

Background of the Case

The charges stem from events following Genesis' bankruptcy filing in January 2023, prompted by 3AC’s default on its obligations. Before its collapse, 3AC had invested approximately $570 million in Terra (LUNA) assets, which plummeted by over 99% after the ecosystem’s crash. By June 2024, the value of this investment had dropped to just $670, severely impairing 3AC’s ability to meet its debt obligations.

3AC’s insolvency sent shockwaves through the cryptocurrency industry, particularly affecting firms with exposure to the fund. On June 16, 2022, 3AC faced margin calls it could not meet, resulting in the liquidation of several positions. Days later, a British Virgin Islands court ordered the fund’s assets to be liquidated. Around the same time, Voyager Digital issued a default notice to 3AC for a loan of 15,250 BTC.

Allegations of Misrepresentation

In July 2022, Moro publicly assured investors via social media that Genesis was actively working to mitigate losses, stating, “We have worked to minimize losses related to a large debtor in June.” However, the SEC claims that DCG and Moro presented an overly optimistic picture of Genesis’ financial health.

Sanjay Wadhwa, Acting Director of the SEC’s Enforcement Division, criticized the parties for painting “an unrealistically positive image that diverged from reality.”

Impact on the Crypto Industry

The SEC’s action underscores its focus on increasing transparency and accountability in the cryptocurrency sector, particularly in cases where companies are accused of misleading investors. This case highlights the significant ripple effects of 3AC’s collapse on firms like Genesis and broader industry stakeholders.

With the penalties accepted, the industry is left grappling with the lessons of transparency and risk management as it seeks to rebuild investor trust.